The Growing Problem of Customer Returns

Product returns from online shoppers are growing. Happy Returns, a venture-capital-funded startup, is one of several companies that provide services to ease the burden for shoppers and merchants. Happy Returns has physical locations nationwide, such as in this shopping mall.

The rate of customer returns for goods bought online is swelling to a worrisome level as more consumers switch from physical stores to online. According to David Sobie, co-founder of Happy Returns, which operates a network of physical return locations for items purchased online, ecommerce returns average about 15 percent, with apparel returns closer to 30 percent. In comparison, only 5 to 10 percent of physical-store purchases are returned. At holiday time, online returns can reach 40 percent.

The cost to online retailers is substantial. According to research firm Statista, in 2017 total U.S. return deliveries cost merchants (online and brick-and-mortar) $381 billion and the total is expected to reach $550 billion by 2020. Since they often incur greater shipping costs related to returns, merchants could be tempted to implement policies that minimize the expense. However they risk losing customers if they make their policies stricter.

Environmental Impact

The fashion and electronics industries are both coming under scrutiny for the environmental impact of returned or excess inventory that ends up in landfills. About five billion pounds of returned goods are sent to landfills annually in the United States according to reverse logistics optimization firm Optoro.

Consumer Expectations

Consumers value a free and easy return process. Many will look at an ecommerce site’s return policy before committing to a purchase, and they will often decide to shop elsewhere if a merchant does not provide free returns. A return policy is a key component of customer satisfaction and loyalty.

Customers also like to have choices as to how they can return goods purchased online. They often want the option of being able to make a return in a physical store. For instance, Amazon’s partnership with Kohl’s to allow returns of items purchased from Amazon to Kohl’s stores has proven to be popular with Amazon customers and beneficial to Kohl’s bottom line because individuals will often make a store purchase after returning the item.

Narvar, a company that offers a post-purchase customer experience platform, conducted a survey of 1,300 online shoppers in 2018 and issued a report entitled, “The State of Returns, What Today’s Shoppers Expect.” Among the findings are:

• Sixty-nine percent of shoppers do not buy online if they have to pay for return shipping.
• Sixty-seven percent are deterred from buying if returns are subject to restocking fees.
• Ninety-six percent would shop with a retailer again based on “easy” or “very easy” returns.
• Forty percent said returning an item bought online to a physical store is easier than mailing It.

If an easy and free return policy is crucial to staying competitive and keeping customers happy, online merchants must find ways to minimize reverse logistics costs. Several companies offer methods of accomplishing this.

Service Providers

• B-Stock. Instead of putting returned items back in inventory or throwing them away, many online and omnichannel retailers are choosing to liquidate them. B-Stock offers individual, branded online auction marketplaces for retailers or brands to sell returned or excess merchandise in bulk quantities to certified resellers. The company’s two largest categories are appliances and apparel. Goods purchased online are often separated from those bought in a physical store because they tend to be in better condition.

The company caters to mass merchandisers such as Walmart and Best Buy as well as small businesses. Amazon is also a customer. According to B-Stock, the volume of inventory sold on its site grew 100 percent from 2017 to 2018. The company does not take possession of any inventory.

• Direct Liquidation aggregates overstocks and returned goods and includes Walmart, Amazon, and Lowes among its clients. It works on an auction model and specializes in bulk quantities.

• Happy Returns. CEO Sobie knows the issue from the perspective of an ecommerce merchant. He was formerly head of marketing and business development at apparel seller HauteLook, which was purchased by Nordstrom.

Happy Returns partners with brick-and-mortar stores and malls to set up Return Bars, which do not have to be in the stores where the purchase was made. In over 300 locations nationwide, consumers can make unboxed returns in person for an immediate refund.

Additionally, in March of this year, Happy Returns rolled out a self-service, in-store kiosk return service for omnichannel retailers so customers do not have to stand in line.

Happy Returns also offers a return-by-mail service for merchants. The company provides aggregation, processing, and disposition services as well. Returns from all channels are aggregated in regional return hubs and distributed in the most cost-effective way possible, including restocking at fulfillment centers or stores, liquidation, donating to charity, or recycling.

• Optoro. This software company offers a returns optimization platform that helps merchants lower processing costs and increases the recoverable value of returned inventory. Best Buy, Jet, Staples, and Target are clients.